Law & Principles

Ray Carter | June 1, 2023

Stitt vetoes compact bills over state revenue concerns

Ray Carter

Gov. Kevin Stitt has vetoed two bills that would extend existing state-tribal compacts on tobacco taxes and motor vehicle licenses, warning that those agreements fail to account for the impact of a 2020 U.S. Supreme Court ruling.

“This Bill may on its face appear to be innocuous. However, if this bill were to become law, irreparable harm will befall our Great State. For these reasons, I have vetoed Enrolled Senate Bill 26X,” Stitt wrote in his veto message.

In the U.S. Supreme Court’s 2020 ruling in McGirt v. Oklahoma, the court declared the Muscogee (Creek) Nation’s Oklahoma reservation was never formally disestablished for purposes of federal major-crimes law.

That ruling has since been expanded to include other tribes whose historic reservations cover most of eastern Oklahoma.

The impact of the ruling could extend beyond public-safety issues to include taxation, including tobacco-tax issues.

Most notably, a case now before the Oklahoma Supreme Court, Stroble v. Oklahoma Tax Commission, effectively focuses on whether any tribal citizen who lives in eastern Oklahoma must pay state income taxes. Prior to McGirt, only tribal members working for tribal entities and living on land owned by a tribe or on land held in trust by the federal government for a tribe were exempt.

However, Alicia Stroble argues that she should be exempt from paying state income taxes even though she lives on privately owned property purchased from a non-Indian, because that property lies within a historic reservation area. Several tribal governments have backed Stroble’s argument in court filings.

Similar jurisdictional issues could arise with the tobacco compacts. While current compacts are understood to apply only to smoke shops operating on tribal trust land, officials expect a legal challenge claiming that a business selling tobacco in eastern Oklahoma is covered by the compacts so long as the owner is a tribal citizen, even if the business is not on trust land.

Stitt noted that fact in his veto message for SB 26X, which would extend existing state-tribal tobacco compacts for another year.

“As enacted, Senate Bill 26X would rubberstamp pre-McGirt compacts containing the very language five of the State’s 38 federally recognized tribes have relied on to challenge, in Stroble v. Oklahoma Tax Commission, the State’s right to collect income tax within its territory,” Stitt wrote. “Although I believe the tribe’s arguments in Stroble are without merit, to legislate as though at least those few tribes are not prepared to lodge the same argument in the tobacco tax context (and likely elsewhere) is at best unwise.”

Oklahoma law also states, “The Governor is authorized to negotiate and enter into cooperative agreements on behalf of this state with federally recognized Indian tribal governments within this state to address issues of mutual interest.”

Because SB 26X and House Bill 1005X, which extended compacts regarding motor vehicle licenses, would be enacted without the governor having negotiated the deals, Stitt said both measures are illegal.

“In clear violation of Oklahoma’s fundamental and statutory law, Enrolled House Bill 1005X purports to extend a single motor vehicle licensing compact without any regard for whether the decade old compact is a fair deal for the State moving forward,” Stitt wrote in his veto message. “Both because this Bill amounts to a circumvention of the executive’s authority to negotiate compacts and because it is not in the State’s best interests, I must veto it.”

His veto of SB 26X contained similar language.

When both bills were heard in the House and Senate, several lawmakers raised concerns about the impact of the McGirt decision on the compact agreements, noting the court ruling could lead to a much larger share of state tobacco sales falling under the compacts.

If that happens, some lawmakers noted that millions of dollars would be diverted from state government, potentially creating financial challenges for programs that currently rely on those funding streams.

State Sen. Casey Murdock, R-Felt, noted that under the compacts being renewed, tobacco tax revenue collected through tribal smoke shops is split 50-50 between the state and tribal governments. However, he said there are 535,675 tribal members in Oklahoma, which is roughly 13.5 percent of the state population.

While courts have ruled that tribal outlets do not have to collect state taxes on tobacco sales to other tribal members, the courts have also held that those outlets must collect taxes on sales to all customers who are not tribal members.

As a result, Murdock said the compacts being renewed represent a bad deal for Oklahoma citizens, even if there was no concern that the 50-50 split could soon be extended to an untold number of additional retailers across eastern Oklahoma.

“A split, 50-50, on sales of tobacco in this state is clearly not fair to the state of Oklahoma,” Murdock said.

He said a “more fair trade for the state of Oklahoma” would provide an “86.5 percent and 13.5 percent split on the taxes generated from tobacco sales.”

“We need to negotiate, for the state of Oklahoma, the best deal we can get for the state of Oklahoma,” Murdock said. “That’s who I work for.”

State Sen. Shane Jett, a Shawnee Republican who is Cherokee, also noted issues with the state-tribal split.

“I would agree that a higher percentage of tribal members would probably buy from their own smoke shop, but just by pure distribution of population probabilities, most of their customers are going to be non-Native Oklahomans,” Jett said.

State Rep. Mark Lepak, R-Claremore, also raised concerns about the impact of the McGirt ruling on the number of outlets that may now be covered by state-tribal tobacco compacts.

“The compacts were created with a certain understanding of what the tribal boundaries were in terms of reservation and all that stuff, but there are court cases currently challenging this,” Lepak said. “So by extending this is it assumed that it is within the existing compact regime—and therefore tribal boundaries and all that—or could we be opening up to 40 percent of the state then falls under this?”

Other lawmakers voiced similar concerns.

“The concern that I have is that in the wake of McGirt, have we really studied this?” said state Sen. Rob Standridge, R-Norman. “Have we looked at the ramifications of extending this?”

“I’m very concerned about aspects of the McGirt decision that could come into play,” said state Sen. Julie Daniels, R-Bartlesville.

Some lawmakers also noted that Stitt has offered a one-year extension of the compacts while various issues are hammered out.

“I’m aware, and we probably all are, that the governor has made some offer to the tribes basically to agree to this year as long as there isn’t some move to try to expand the territorial aspect of those things,” Lepak said.

Jett also noted that Stitt offered a one-year extension to the tribes that tribal officials did not embrace.

Both SB 26X and HB 1005X could be brought up for an override attempt in the Oklahoma Legislature during the ongoing special legislative session. However, if lawmakers do override Stitt’s veto, the governor’s veto messages suggest those two measures could quickly draw legal challenges.

Ray Carter Director, Center for Independent Journalism

Ray Carter

Director, Center for Independent Journalism

Ray Carter is the director of OCPA’s Center for Independent Journalism. He has two decades of experience in journalism and communications. He previously served as senior Capitol reporter for The Journal Record, media director for the Oklahoma House of Representatives, and chief editorial writer at The Oklahoman. As a reporter for The Journal Record, Carter received 12 Carl Rogan Awards in four years—including awards for investigative reporting, general news reporting, feature writing, spot news reporting, business reporting, and sports reporting. While at The Oklahoman, he was the recipient of several awards, including first place in the editorial writing category of the Associated Press/Oklahoma News Executives Carl Rogan Memorial News Excellence Competition for an editorial on the history of racism in the Oklahoma legislature.

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